Roth Conversion 7-Step Guide: Complete Implementation (Nov 14, 2025)

🗺️ The Complete Roth Conversion Roadmap – In this 3.5-minute guide, Tony Leonardi, CFP® from Newtown, CT, walks through the exact seven steps for properly executing a Roth conversion.

STEP 1: Run Your Financial Model (October-November)
Why October-November? By November, you know most of your current year income—W-2 is set, bonuses announced, investment income mostly realized, capital gains from sales known.
What to Model: Project your next 20-30 years showing income, tax brackets, RMD timing and amounts, Social Security taxation, Medicare IRMAA triggers.
The Goal: Identify low-income years where conversions make sense.

STEP 2: Calculate Your "Conversion Budget"
What It Is: How much room you have in your current tax bracket before jumping to the next one.
Example - Married Filing Jointly:
• Current taxable income: $120,000
• You're in 22% bracket (goes up to $206,700)
• Room remaining: $86,700
That's your conversion budget. Convert up to $86,700 and stay at 22%.
The Strategy: Fill up your current bracket, don't spill over unless you mean to.

STEP 3: Coordinate With Your CPA
Not Optional: This is not a DIY project. Your CPA must review your overall situation.
What CPA Needs to Check:
• Overall 2025 tax situation
• State tax implications (some states tax conversions heavily)
• Whether to adjust Q4 estimated payment (due Jan 15, 2026)
• Form 8606 if you have after-tax IRA basis
• How conversion affects other deductions/credits

STEP 4: Execute the Conversion (Before December 31)
The Process:
1. Call your IRA custodian
2. Say: "I want to convert $X from my Traditional IRA to my Roth IRA"
3. They process it (usually takes 3-5 business days)
4. Ensure it settles by December 31
December 31 Deadline: This is a HARD deadline. Conversions must be completed by year-end. No extensions. If it settles January 2, it counts for 2026, not 2025.

STEP 5: Pay the Taxes (Critical Decision)
Option A: Pay From Outside Funds (BEST) Pay taxes from your savings or checking account, not from the IRA itself.
Why It's Best: The full conversion amount stays invested and grows tax-free for decades.
Example: Convert $86,700 at 22% = $19,074 in federal taxes. Pay from savings. The entire $86,700 grows tax-free in your Roth.
Option B: Withhold From Conversion (LESS IDEAL) Tell custodian to withhold 22% for taxes.
The Problem: Only $67,626 makes it to your Roth ($86,700 - $19,074). You paid taxes on $86,700 but only got $67,626 working for you.
That $19,074 could have been compounding tax-free for decades.

STEP 6: Set Aside Money for April
The Issue: If you paid from outside funds and didn't adjust estimated payments, you'll owe when you file.
The Solution: Set that money aside NOW. Don't spend it thinking you have extra cash, then scramble in April.


STEP 7: Track Your Five-Year Clocks
The Rule: You must wait five years from each conversion date (or until age 59½, whichever comes first) before you can withdraw the converted principal without a 10% penalty.
Important:
• EACH conversion has its OWN five-year clock
• Conversions in 2025, 2026, 2027 each have separate clocks
• After 59½, this rule doesn't apply
Example:
• Convert $50,000 in December 2025
• Cannot withdraw that $50,000 until January 2030 without penalty (if under 59½)
• Can withdraw Roth contributions anytime penalty-free
• Can withdraw earnings after 59½ and five years from first Roth contribution
Why It Matters: If you need the money before the five years is up, you'll pay a 10% penalty on the withdrawal plus regular income tax on earnings.
Tracking System: Create a simple spreadsheet:
• Date of conversion
• Amount converted
• Five-year date (when penalty-free)

STEP 8 (Bonus): Review Annually
Why: Your situation changes. Income changes. Tax laws change. What made sense last year might not make sense this year.
Annual Review Questions:
• Did my income change significantly?
• Are my tax brackets still the same?
• Should I convert more this year?
• Did I convert too much last year?
The Bottom Line: This seven-step process ensures you execute Roth conversions correctly, maximize tax benefits, avoid penalties, and don't leave money on the table.

The difference between doing this right and doing it wrong can be tens of thousands of dollars.

Resources: 📊 Roth Conversion Planning: LeonardiFamilyWealthcare.com/assessment
📖 Book: A Smarter Way to Retire: 10 Steps Towards a Confident Financial Future
📱 Follow: @TonyLeonardiCFP (Instagram) | Leonardi Family Wealthcare (Facebook)
🎧 Full Deep Dive Episode: Listen on Spotify | Apple Podcasts

Compliance Note: Roth conversion implementation requires coordination with CFP® and CPA. Five-year rules apply to early withdrawals. December 31 deadline is firm. State tax treatment varies. Consult professionals before executing.

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